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Rural and Regional Affairs and Transport References Committee - 20/02/2015 - Marketing and research and development levies in the agricultural sector

ROBERTSON, Dr Graeme, Private capacity

CHAIR: I now welcome—last but not least—Dr Graeme Robertson. The committee has received your submission as submission No. 122. Do you want to make any amendments or additions to your submission?

Dr Robertson : No, I do not.

CHAIR: In that case, Dr Robertson, I am going to invite you to make a brief opening statement before we go to questions.

Dr Robertson : Thank you very much for this opportunity and thank you very much for coming to Western Australia. I am sure it has been a long week for you, and a particularly long day, so I hope we can be pretty concise here this afternoon. I do not usually make submissions to Senate inquiries on a personal basis; I have made enough in my professional career to not relish the opportunity. But when this came up I thought I would make some comments. I have a rather independent—perhaps impartial—view that has been gained from experience across all sides of it. I was director general of agriculture when the Western Australia department was the biggest single recipient of GRDC funding; funding from other sources was also critical to its ongoing research and development activity. I have been on national boards; I chaired the Land and Water Resources Research and Development Corporation for the first six years of its existence and I have also been on the board of GRDC. I have done work for GRDC; I have done work for GRDC's clients and I continue to work in the agricultural area although at the moment, I should perhaps point out, I am not engaged with any activities with any party in Western Australia. I am currently working for the Kuwait government and the Kuwait Investment Authority developing food security strategies for the country.

When I look at people engaged in this debate—and this debate has been going on for a long time now—there are those people who are philosophically opposed to any form of compulsory levy, or compulsory collection of any fees or any taxes, and they will continue to be opposed to it.

On the other side you have got a large number of people, which is just about every researcher now involved in agriculture, who are conflicted in the fact that they are reliant on receiving funds from research and development corporations or sometime in the future they expect to receive funds from them. That now extends to a large number of individual growers and grower groups across the country, and even a lot of the consultants that service the industry. It is very hard to get someone who can take a position or a view that is not very closely compromised—'compromise' is perhaps too strong a word; 'conflicted' is probably a better word.

I believe that research and development is critical to the industry. It provides the opportunity for the industry to improve productivity, and I am talking about agriculture broadly. In the past the research and development corporations have done a tremendous role. There are a lot of things that we take as commonplace in agriculture today that may not have been developed at all had it not been for funding from the research and development corporations. So I am not opposed to research and development. I think that the funds as they were set up provided the opportunity for public good activities when there were lots and lots of individual growers contributing often a fairly equal amount of money into the kitties to get research and development which was immediately applicable within their agricultural business.

However, over the last 30 years, and particularly in the last decade, the agricultural landscape has changed dramatically. Some key issues I have raised in the report. The scale of individual businesses now is such that you would not have dreamed of it 20 years ago, and it is concentrating greatly. At one end, in the Western Australian context, some industries have only two or three growers producing most of the product. Sixty per cent of the eggs in WA come from one company; 50 per cent of the avocados in WA—and, I think, 15 per cent nationally—and mushrooms are dominated by one company across the country.

The grains are less so, but if you look at the grains industry you are probably looking now at 1,000 growers who are producing 75 to 80 per cent of the crop; whereas 30 years ago you were looking at about 12,000 grain growers in the state. So it is concentrating into some very big players.

Global technologies are increasingly important. Again, when the research and development corporations were developed we were still adopting technologies to the Australian landscape. Now a large part of what we use comes from somebody else. It is a global technology that is often owned by life science companies that is made available often reasonably equally across the world.

The private sector is increasingly involved in research and development. If you take the fruit industry, a lot of the breeding is done by private companies now, often companies stationed offshore. In the grains industry the investment by the international life science companies in the breeding programs is very large. They are running programs across all major producing countries. These are things that, again, 30 years ago were bread and butter for state departments and/or the research and development corporations to do. It is no longer being done by them; it is being done by the private sector that delivers the service and gains a significant return out of providing that service to growers.

Accountability is, I think, an important issue, and I was interested in Julian's comments on it. I see very little evidence that the research and development corporations undertake rigorous ex-ante studies of their investments before they do them. Scarcely any of them do life-of-project assessments to work out what is happening, what the attribution might be of the research and development that is occurring and what else is happening in the landscape that might be facilitating that R&D outcome or obstructing it. None of them do life of project.

Quite a few of them do ex-post assessments and they usually pick things that have worked really well. They do not do it across the portfolio. There is no attribution. Everything is claimed from that research without having understood what has happened in the environment. If you look at the GRDC benefit-cost studies on minimum tillage—which has got a phenomenal return of 70-odd per cent, they say—they have not counted the millions of dollars that were spent by farmers, by other organisations and by private companies to get that technology introduced. They claim all the credit, basically, for that activity.

So there is no transparency about what return you are getting, and there certainly is no transparency about the returns that are accruing to classes of growers or individual growers. By that I mean the big growers. What are they actually getting? Is the return going to the bigger growers or the smaller growers or the growers in the middle? No-one has got any idea.

The big guys in the grains industry and in the horticultural industry have complained for a long time that they do not get the technology coming out of the GRDC programs or out of the sheep or wool programs as they were out of MLA. They are continually making these complaints, but there is no intent to try to work out who is getting what benefit for what they are paying, and there is certainly no attempt to invest in areas where the benefits accrue in a similar proportion to the cost that people are paying. There are lots of issues around that.

Research capacity is a critical one. Unfortunately, at the moment there is not much research capacity left in agriculture. It is not funded by the research and development corporations. Because the corporations have been fairly wealthy, they have either accidently or deliberately crowded out state government investment in research and development. The converse, or the corollary, is that state governments have been quite happy to get out of it because they can see that there is someone there that is going to pick up the tab. It has happened across the country and certainly it is in quite a critical phase in Western Australia at the moment.

In conclusion, there certainly is a need in industry for industry-good investment. Biosecurity security is a classic case. Biosecurity planning activities and research on threats is something that all of industry needs to have done and therefore the only way to do that is with levies. On the other side, I think there are a lot of things now that have moved into the private sector and we have ended up with farmers paying more than once for the same technology. The classic one is plant breeding. GRDC used to invest about 20 per cent of its money in plant breeding. It was a very successful program; I make no bones about that. It then transferred it to the private sector and the private sector now takes an import royalty of three per cent. The growers were paying a one per cent, or 0.95 per cent levy, for research and development, including the payment for crop breeding. They are still paying the 0.95 per cent, plus the 0.05 per cent for biosecurity or plant pests and diseases, and then they are paying approximately a one per cent end-point royalty on the grain in addition. So now they are paying two per cent of their gross revenue for the same buddle that 10 years ago they were paying one per cent for. My observation is that it is hard to see how GRDC has found investments of equal benefit to growers with the extra money that they have had to spend. I will leave it there, Chairman.

CHAIR: Thanks, Dr Robertson. I just wanted to ask you, because of your vast experience in the sector and also because you did say you were on the committee of GRDC, I think on the board—GRDC are coming in for a bit of criticism today. They will have the opportunity to answer those criticisms and we will put some questions to them back in Canberra. A number of things have come out of this but one of them is that the growers would love to have representation on the board when decisions are being made by the GRDC. What are your thoughts on that? I am reading GRDC's wonderful little fuzzy warm statement about where the expertise is. I respect that you have to have expertise in business management, strategy, corporate governance and the like. What about the growers having greater representation? What are your thoughts? Let us change 'growers' to 'levy payers'.

Dr Robertson : Levy payers need to have a very clear say in where their money goes. They cannot put it to a third party which is disconnected. There is no connection between what levy payers want or need and not enough research in finding out what they need and the GRDC as a body. The board of the GRDC, in my experience, does not make decisions about investments. It might make them in a very general sense but it is largely about the governance and the process, and the decisions are then made at the regional panel level. That is very strong. The regional panel chairs meet; they are called the national assessment panel, or something along that line. So the actual investment decisions about which disease to research or what fungus we are trying to kill is not done by the board. The board is very much about the corporate governance and the management of the process. There are growers—and they are mainly growers—at the panel level involved in decision making.

The question you asked, which was a very, very good one, is: is that a benefit or not? I think it is a big benefit in identifying what the problem is, but it is not necessarily a benefit in making a strategic investment decision about what you can do. I think some of the leading scientists in the country have been disenfranchised from the process of identifying what research might be of benefit in the future. That, again, is also a two-edged sword, because a lot of researchers want to continue research in what they are researching at the moment as distinct from moving somewhere else. I have made a clumsy effort at answering your question.

CHAIR: No, you have not made a clumsy effort.

Dr Robertson : It is a critical issue. Parochial growers will often not be well enough informed to make the correct strategic decision. But if you do not have significant grower input from the levy payers about what their needs are, you are not going to get anywhere.

Senator REYNOLDS: What you have described here is that farmers felt that the scientists were actually out in the paddock with them, having a look at what they need and were much more in touch with what the farmers really needed.

Dr Robertson : In the past, you are saying?

Senator REYNOLDS: Yes.

Dr Robertson : Yes. I think that is undoubted. If you look at the research in agriculture that is being done now, probably half of it is being done by people in white coats in laboratories. This is research that is of benefit to agriculture. There are very few people in the research area who are actually out in the paddock on a regular basis with farmers.

CHAIR: From the evidence that we have taken today, it appears that the majority of representations today are showing frustration. Bear in mind, avocado has nothing to do with GRDC; we get that. But certainly in the grain industry they do not have the input. You have said that it goes through the area panels or whatever it is—the north-south-west, I think it is. I do not know whether that is filtering through to the industry, because I certainly did not pick up that anyone has a say in where their money is spent—not at all. Anyway, that is for GRDC.

Dr Robertson : The reason avocados is an interesting juxtaposition against grains is that they are trending in the direction. I do not know whether this has now been sold, but it was certainly on the market recently. The guy is probably the biggest grain grower in Australia, operating out of New South Wales. He had exactly the same sorts of concerns. He is an enormous levy payer, the biggest levy payer. He is saying: 'What am I getting for my buck? If I kept that, I could have a full-time researcher on my property doing what my business needs.' The grains industry is trending towards the position that the avocados, the mushrooms, the pigs, the chickens or whatever you want to talk about are going; they are all going that way. To me it is critical that the model has the opportunity to evolve fairly quickly, or it is just going to be destroyed. My feeling is that the opposition is growing as more people are thinking that they are not getting what they want out of it.

CHAIR: I take on board that you have to have the corporate governance and all of that sort of stuff, but I can now ask you for an opinion because you are not employed by any government department. This committee worked diligently, we travelled the country and we shone a massive light on the shortcomings of MLA. I am not going to start apologising for MLA. They deserved to get a wake-up call and a slap around the ears—and they have. It is now up to the minister, if he has got the political guts to act on it. The biggest thing that came out of the grass-fed levy inquiry was the pleading of the industry to have a body where they can determine where their money goes. You have addressed my question. But what about the rest of horticulture? What about agriculture? Dr Robertson, what is so wrong with people who are forking out the money actually saying, 'We think we know best'—maybe not the governance issue, maybe not the implementation and all the business bollocks that go on the back of it and all the paperwork. I do not see where there should be any opposition to that model.

Dr Robertson : My reticence is actually seeing what the wool guys did to themselves. With growers, again, it was a particularly peculiar set of industry politics; but they totally destroyed that. They destroyed the marketing side as well as the—

Senator LEYONHJELM: Are you talking about the floor price?

Dr Robertson : No. It was the Wool Research and Development Corporation. It had so many guises. All they did was fight. The directors fought with each other. You never knew whether they were coming or going. Research got shunted. MLA—it is incredulous in a way. We have only got a small beef industry in the south of WA. We had about a million cattle 20 years ago. We are basically self-sufficient in Western Australia. MLA—MLC at the time—decided they would not invest in research and development in Western Australia because the industry was too small.

CHAIR: No, but they will open an office in Paris or some crap and dine on red wine.

Dr Robertson : The guys in Western Australia, who were largely producing for the domestic market, were paying their levy every time they sent an animal. That was run by producers as well. I totally agree with you that levy payers should be deciding how much they pay, what the returns will be and what they are going to invest in. The decision somehow should be made on the basis of what they are paying. Whether that is one vote for every dollar of revenue or whether it is classes of growers or something, it needs to be driven by the people in the industry who are really making professional decisions about what they are doing.

CHAIR: That is understandable too, but I just want to get your thoughts on this before I go to Senator Leyonhjelm: while you have appointees who are appointed by the minister, whoever the minister may be and in whichever government, it is hard to see from what we have been discovering that the appointees actually have the chutzpah to get out there and have a crack and make decisions. These are only my own thoughts—and I would be interested in yours, Dr Robertson: they become very timid. People get a bit too scared in case they might rock the boat and lose the nice little position they have.

Dr Robertson : I would be very comfortable with a process whereby the boards were elected by levy payers, proportional to the levies that they pay.

CHAIR: That has been a theme all the way through this inquiry. This is about our third-and-a-half hearing, I think.

Senator BULLOCK: Would you complement that with a cap? For example, if you had one levy payer who constituted 60 per cent of the total levies and you did it on a proportional basis then it would be that person's show. Do you think proportional representation should be subject to account?

Dr Robertson : My gut feeling says, 'He who pays the piper calls the tune.'

Senator BULLOCK: My interest as a 60 per cent producer might be to get rid of the other 40 per cent.

Dr Robertson : Unfortunately—and this is a critical issue—we now have concentration of industries across all the horticultural scene. There is no horticultural product where there are not a few dominant producers. Where you have got that concentration they are all in deadly competition with each other. It is about getting the Coles contract, getting the Woolworths contract, getting your stuff to market two days before the other guy, getting the apples slightly bigger. They are in absolutely deadly competition.

There is some really important common-good activity and there has been in the past. Getting apples into Japan and places like that required the whole of industry to invest. Getting citrus fruit into Japan was classic. It took a long time to allow fresh citrus fruit from Australia into Japan with all the protocols. That is benefiting the whole of the industry. There are common-good things, but a lot of the research and development is about improving the competitiveness of an individual and I do not know that that is a sensible thing for common levies to be involved in.

Senator LEYONHJELM: This is refreshing. I honestly love listening to you talk about this; you are expressing my views. Can I run by a couple of points and get your views on them? Two things keep coming up in terms of elections. One is the board of the organisation that oversees the expenditure of levies, the election of that. That was the point that Senator Sterle was referring to a moment ago. The other one is voting on whether to have levies and at what level to have levies. That has also been something that has been coming up all the time, and it is partly my fault. Earlier when you were answering Senator Sterle's question, were you just talking about the board or were you talking about voting on levies per se?

Dr Robertson : I think I was talking about voting on levies in that particular case.

Senator LEYONHJELM: You were?

Dr Robertson : But I think the board as well.

Senator LEYONHJELM: So you would support voting for both?

Dr Robertson : Yes.

Senator LEYONHJELM: Yes. Grower voting—production based, production emphasised?

Dr Robertson : Yes, I think so. Whether it is exactly or whether it is classes—I think they are the place to have them.

Senator LEYONHJELM: Let me test a little theory on you. I absolutely agree with your reasoning on this that the more there is a dominant participant in a sector, the less the justification for pooling of levy funds to undertake either R&D or marketing. We saw this with the mushroom growers and Costa. It was an absolute prime example. You could argue that for the smaller levy payers, the smaller growers, voting for a compulsory levy is basically voting to spend Costa's money. If all the sectors had a vote according to their production weighting, say, every three years on whether to have a levy—and, if they have it, whether it is higher, lower or status quo to what they have now—sooner or later each sector that became dominated by one or two or three producers would then have that critical decision. They would have enough votes, if it were production weighted, to say, 'W don't need them any more.' They would stop. As a free market person, I would say that is good. They have come to the conclusion they do not need the compulsory levy any more; they will do their own thing, they will fund their own R&D and life will go on. A production-weighted voting system for a levy has the potential to be self-cancelling when the sector reaches a certain status. I do not see anything wrong with that, but I am wondering whether you do. Are there any flaws in that line of reasoning?

Dr Robertson : No. When I looked at your terms of reference and thought I would put some notes together for a proposal, I was implicitly thinking that—that it is an evolution. With the landscape in the last 30 years—and I tried to look across all industries—we had a couple of hundred pig producers; now we have got three producing 90 per cent of the pigs, and one of those is probably going to stop soon. It becomes irrelevant. They are self-cancelling. The grains industry is still quite a way from that, but it is starting to get those tensions. When you get the Chinese coming in and buying half a dozen farms and the Qataris, Hassad, buying another raft of farms, the concentration is rapidly growing pace. Macquarie Investment have bought a swag of farms across the country. It is starting to get this different landscape where the industry-good activities are in complete tension with the private business benefits. It is changing, and you need to start to put in place a process that reduces the tensions. The tensions, you would have heard here—when I look at the people you spoke to today, there are some significantly impassioned views on both sides.

Senator LEYONHJELM: That is right. Some people think that the purpose of levies is to keep all farmers profitable, and there has been an argument that levies should be linked to profitability. They are not just talking about the top 20 per cent of farmers, they are talking about everybody's profitability That seems to me to be not the way to look at it. If you had a vote for levies, whether to have one and how much the levy would be, if the levies were being overall productive, overall profitable, for those—based on the weighted voting, again—it would be self-determining whether they were legitimate or not.

If research could be undertaken where the benefit could be captured by whoever funded it, there would be more of a likelihood they would vote against levies. If it could not be, they would be more likely to vote for levies. We could set in place a process by which the industries could essentially determine their own future in this. Is that right or not?

Dr Robertson : I think that is the case. One of the difficulties is, when you set a levy, it is often incredibly vague what you are going to do with it. There is often no linkage between the decision to have a levy and what it is spent on. The levies were used in the grains industry for plant breeding, and in the Western Australian context we were in a process of shifting from the traditional varieties into the Green Revolution type varieties, so benefits to growers were happening very quickly. If they put a new variety into a paddock, adoption was as fast as they could get the seed. The breeding program was investing the money and GRDC assisted greatly in getting the genetic material from overseas, from Mexico and other places, getting it through quarantine and incorporating it into our breeding lines.

From the moment the farmer planted that variety, he was getting that benefit into his pocket immediately. Everybody was. It was not expensive to change varieties. All you had to do was pay a normal price for seed. The levies were very sensible in that situation. You start to get, 'What are we going to spend the levy on now?' and you have a whole raft of decisions. They are separated from the individuals when they decided to have a levy, because it was a good idea to have one for grain breeding a long time ago.

One of the things that has got me thinking about this quite a bit is—I am on the Agricultural Produce Commission in Western Australia, which is a statutory authority that provides a facility of growers to raise a fee for service, within their industry, to undertake industry-good activities. Because state governments are not allowed to raise taxes, this cannot be a tax. It has to be a fee for service. You have the opposite situation where the industry has to decide what it wants to do, what activity it wants to undertake, and then it works out what that will cost. Then it works out what the fee for service might be to undertake that activity.

I am one of four commissioners and it is just a very small job, but when an industry wants to impose a levy we have a poll of the industry. We also are absolutely strong in that the big players have to be supportive of this. The citrus people have just gone through the process and they are dominated by three or four big growers. They are totally in favour of it. They are using that levy to run their industry association, which is a fairly small body that is looking at marketing opportunities et cetera.

The wine industry has been going through a process to do exactly that. The wine industry has great big players in it and small players and regional groups that do not like each other very much. They have gone through a two-year process where they have agreed that they want a levy but they want it for a specific purpose, which is about promoting brand WA wine. The levy is going to pay the cost of that. To change the levy, they have to actually budget what they are going to do. That makes it easy to ensure that you are getting what the levy payers want; whereas when you just set a levy at a particular rate, and it goes on forever regardless of the benefits you are getting from investing it, it makes it much more difficult.

CHAIR: That makes too much sense.

Dr Robertson : It does.

Senator BULLOCK: I want to congratulate you on an outstanding submission.

Dr Robertson : Thank you.

Senator BULLOCK: I got to the end of it, and when I turned over the last page I expected to find a recommendation (9) allowing levy payers to vote on the split between R&D and marketing and in (10) to put an emphasis on promoting the benefits of the R&D that they had done back to the levy payers so that they could get the value from their R&D. Had you done that it would have been just perfect.

Dr Robertson : I apologise for that.

CHAIR: Keep trying, and we might make you the minister before the day is out.

Senator REYNOLDS: I also want to congratulate you. It was a very succinct but potent submission, and particularly your recommendations—thank you. One thing that I wanted to pick up on is this issue of IP. We have had testimony about what is perceived as double dipping, particularly by the GRDC with the levies. In terms of the IP, where I am coming from dovetails into the back of what you were just talking to Senator Leyonhjelm about. We had an example from the Apple and Pear Growers Association. They effectively have few, if any, levies now because they have retained their IP for the Pink Lady and others they are breeding—that is what we have been told—but they now use it to offset levies. They have retained it, but they have not used it as an additional source of income over and above everything else they already get. For me, that seemed like a very logical way to go and quite an accountable way to do it. I am just wondering whether you have any further thoughts on ways that we could look at either recommendations or how to achieve what you have put here about IP? You have good examples maybe?

Dr Robertson : If we had three hours I would talk about the Pink Lady, because we actually developed that; we developed the international trade mark and the international plant breeders' royalty.

Senator REYNOLDS: There is another one as well, isn't there?

Dr Robertson : There is Sundowner.

CHAIR: You do not have three hours, by the way.

Dr Robertson : I will be very quick. It has been well written up that it is probably the first fruit in the world that actually had a trademark on it which specified exactly what it has to look like in the market. That trademark went out to international groups so we could supply the market for 12 months because Western Australia is only a very small producer of apples. The long and the short of it was that we ended up in court cases in the USA on breach of plant breeders' rights and it was—I do not know if it still is—the biggest plant patent infringement in the history of jurisprudence in the US. I used to lie awake at night because it used to cost $10,000 to ring the lawyers.

CHAIR: What do you mean 'used to'? They are dearer now, are they?

Dr Robertson : They probably are. Anyway, the long and the short of it was that we actually won the court case and there was $1 million settlement. We had similar issues in Europe but, at the end of the day, we transferred the ownership of that international trademark to the Apple and Pear Growers Association, who have made millions out of it. It took a lot of managing. You were managing commercial companies because you have six people who use that trademark and only six that use that trademark globally. I have not seen John Durham for at least 15 years, but he does owe me a couple of beers. The issue with that is that most of that money is not paid by Australian growers. Most of that money is paid by growers in Chile, Argentina, the US, France, Italy and New Zealand.

Senator REYNOLDS: So it is a great example of our IP that was developed and paid for by growers here being used.

Dr Robertson : I do not disagree with that, and I think there is a lot more coming down the track with some of the genetic work that is being done, when you have got an issue like the plant varieties where the growers are investing in technology and they have actually got to then pay to access that technology again. The breeding companies are getting it at the moment, and perhaps rightly. They are basically getting free access, or preferred access, to a lot of IP.

Senator REYNOLDS: The way I understood what had been explained to us was that growers in some commodities are paying for the research and are then paying to utilise the outcome of that research in terms of additional levies. They are not getting any benefits that accrue from that research overseas or elsewhere. Is that a simplistic way to put it?

Dr Robertson : They may be getting benefits from overseas; it could be coming back to the research and development corporation. But they are still paying—

Senator REYNOLDS: They are still paying their levies.

Dr Robertson : a levy. They are often then paying, in the cost of something, an intellectual property access fee, but it is not called an intellectual property access fee. The person who has got that technology is selling it.

Senator BULLOCK: Is it true for them to say that the Pink Lady is not red enough?

Dr Robertson : Sorry?

Senator BULLOCK: Haven't they decided that the Pink Lady is not red enough for the marketers? Did I pick that up somewhere?

Dr Robertson : I did not know that one, but one of the court cases we had was in relation to a natural spore; apples tend to mutate with sunlight because the fruit comes on the bud and the sunlight can affect the bud. Someone in Europe got one that had more pink on it, deep pink, and that took a lot of negotiating to incorporate that as a Pink Lady.

CHAIR: As there are no further questions, Dr Robertson, we thank you for coming along today and appreciate your presentation to us. I am sad to say that that concludes today's hearing. Thank you to our witnesses and, on behalf of the committee, certainly the hard work of Joan and Trish, our diligent, hardworking secretariat. The committee now stands adjourned.

Committee adjourned at 16 : 27